Gusmao's $15m rice deal alarms UN

From WikiLeaks

EAST Timor Prime Minister Xanana Gusmao has signed a $US14.4 million ($14.9 million) food security contract giving sole import rights to the vice-president of his political party - a deal that is ringing alarm bells at the UN and among the impoverished country's main donors, including Australia.

Dili-based diplomatic sources said they had strong concerns about the deal, seen as a blow against efforts to improve governance and transparency in one of Southeast Asia's most troubled and poorest countries.

Speaking on national television on Saturday night, Mr Gusmao defended the contract, saying it would ensure food security for the country at a time of need.

A copy of the contract signed on May 7 - entitled "The Supply and Warehousing of White Rice" - which has been obtained by The Australian, shows Mr Gusmao's signature authorising the procurement of 16,000 tonnes of white rice for $US14.4 million.

The beneficiary is given as Germano AJda Silva, director of Dili-based Tres Amigos Company and vice-president of Mr Gusmao's CNRT party.

The contract is an amendment to an earlier procurement for 8000 tonnes of rice for a price originally set at $US4.08million.

"The Ministry of Finance Procurement Service hereby declare the following amendments to the above mentioned contract," it says. "The contract price is hereby changed from $US4.08 million to $US14.4million.

"The price increase has resulted from changes to the contract quality and unit price."

The opposition Fretilin said yesterday the rice contract was evidence of growing corruption involving the Prime Minister and close associates.

Fretilin's Arsenio Bano - who sits on the parliamentary committee for financial oversight, defence, national security and foreign affairs - said in addition to conflict of interest concerns, the deal had major national budget implications for this year.

Mr Bano alleged that Mr da Silva had been involved in an earlier case of misappropriation of public monies in 2000 in which Mr Gusmao was forced to replace a $US20,000 accounting shortfall in his then presidential office with his own money.

The latest allegations are a blow to the image of Mr Gusmao, a celebrated former leader of the pro-independence FALINTIL guerilla force that spearheaded the territory's bloody 24-year struggle to separate from Indonesia. Like many guerilla leaders turned politicians, Mr Gusmao, while personally popular, has shown himself to be less adept at public administration.

"The Prime Minister said on the weekend on national television that he prefers not to let the people of East Timor starve of rice." Mr Bano said. "But this statement is very concerning for us because it could be seen to be promoting even wider conflict of interest and collusion.

"What does this statement promote as an example for the other ministers?"

It is understood that the UN's World Food Program, US and Australian embassies in Dili have raised concerns about the deal following several other contentious multi-million-dollar contracts, including the procurement of Chinese patrol boats and two heavy fuel-oil powered electricity plants.

To cover these and other contracts, the Government has sought a supplementary budget increase for 2008 of more than 122 per cent, up from a parliamentary approved $US425.5 million to $US773 million.

According to Mr Bano, the Government has shown an inability so far to spend even a fraction of its original budget allocation and moves to raise more money from the public coffers are matters of extreme concern.

"What we are very concerned about is the Government's capacity to spend this money properly. Between January and March this year, the Government spent only $US32million - that is just over $US10 million a month," he said. "Why on earth would they now be wanting an extra $US425 million?"

First appeared in The Australian. Copyright remains with The Australian (News Corp). Thanks to Mark Dodd for reporting on this document.